Financial services firms in Scotland looking to side-step expensive redundancy payments

An increasing number of financial services professionals in Scotland are taking legal action against their employers for unfair dismissal, claiming the move was merely a ploy to avoid expensive redundancy payments.

Obviously redundancy is a distressing event for an individual, but it's also an expensive process for a company.

As we've alluded to previously, financial services organisations in Scotland are being relatively generous when it comes to redundancy payments. Rather than the statutory minimum, the norm is to offer a month's pay per year of service.

"A lot of the litigation we're seeing is people accusing financial services organisations of dressing up disciplinary action against in order to avoid redundancy payments," says Tony Hadden, partner in the employment practice at Brodies in Edinburgh. "For example, people are being told they've breached internal procedures and are being dismissed, while they're claiming this is just because they've had 20 years of service and making them redundant would be expensive."

Understandably, these sorts of accusations are largely coming from long-serving employees within relatively senior positions.

For the sake of argument, imagine someone has been with a company for 25 years and is earning 100k. This would mean they're entitled to 208k in severance pay, which is a reasonably large payout for a company looking to cut costs.

One employment lawyer in Scotland, who represents employers rather than employees, says that her financial services clients are making redundancies based on decisions where there is a "clear diminished requirement", rather than how much it will cost them.

"If an older worker isn't singled out for redundancy because of the expense, and a younger employee loses their job instead, this is effectively age discrimination reversed, and is a big risk for employers to take," she said.

But the precedent is there for companies to consider the cost of laying off an individual when making redundancy decisions, says Hadden.

"We've seen cases involving local authorities where long-serving employees have been taken out of fixed term contracts, or moved to other divisions, so companies can avoid expensive redundancy payments," he says. "Three or four years ago, companies would have faced discrimination cases, but there's been a shift in the current economic climate."